Decision Tree

What is a 'Decision Tree'

A decision tree is a schematic, tree-shaped diagram used to determine a course of action or show a statistical probability. Each branch of the decision tree represents a possible decision, occurrence or reaction. The tree is structured to show how and why one choice may lead to the next, with the use of the branches indicating each option is mutually exclusive.

BREAKING DOWN 'Decision Tree'

A decision tree is a graphical depiction of a decision and every potential outcome of making that decision. It can range from something simple to a complex undertaking. Decision trees give people an effective and easy way to understand the potential options of a decision and its range of possible outcomes. This helps people identify every potential option and weigh each course of action against the risks and rewards each option can yield.

Depicting a Personal Decision Tree

All decision trees begin with a specific decision. This initial decision is depicted using a small square to the far left of the eventual tree. Lines are drawn outward from the box, representing each potential option. At the end of each line, or option, it is important to analyze the results. If the result of an option is a new decision, a box is drawn at the end of the line, and new lines are drawn out of that decision, representing the new options. If the result of an option is unclear, a circle is drawn at the end of the line, denoting a question mark and potential risk. If the option results in the solution to the decision, the line is left blank.

Each line moves from left to right, and a decision tree can span as long or as short as is needed to come to a proper conclusion. A person depicting a decision tree should include every possible decision, outcome and scenario in the tree. This helps with analysis and ensures there are few surprises.

Analyzing a Decision Tree

Ultimately, a decision tree is used to clarify and find an answer to a complex problem. The structure allows users to take a problem with multiple possible solutions and display it in a simple, easy-to-understand format that shows the relationship between different events or decisions. The furthest branches on the tree represent the end results.

Each end result should be assigned a risk and reward weight or number. A user analyzing a decision tree looks at each final outcome and assesses the benefits and drawbacks. The result with the highest total value is chosen and a decision is made.

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